February is off to a fast start for employers on a state and on the Los Angeles local level.  This Friday’s Five covers updates on California pay data reporting site, and LA City and County minimum wage announcements, deadline for employers to provide notices to employees who have noncompetition agreements, and updates to the required Notice to Employee under Labor Code 2810.5:

1. California’s payroll data reporting site opened for employers to meet the May 8, 2024 reporting deadline.

The California Civil Rights Department (CRD) opened the Pay Data Reporting portal on February 1, 2024 for California employers to submit their 2023 payroll reports.  California employers with 100 or more employees and/or 100 or more workers hired through labor contractors must submit reports annually.  This year the reports are due by May 8, 2024. 

The CRD updated the User Guide, templates, and the FAQs for California employers.  It is critical for employers to start gathering the information as soon as possible in order to meet the May 8th deadline. 

2. Los Angeles City minimum wage will increase to $17.28 per hour on July 1, 2024.

Los Angeles City announced on February 1, 2024, that the City’s minimum wage will increase to $17.28 per hour on July 1, 2024.  More information and the required posters for employers are available on the City’s website here

3. Los Angeles County minimum wage will increase to $17.27 per hour on July 1. 2024.

The County of Los Angeles maintains its own minimum wage, and the county recently announced that as of July 1, 202, its minimum wage will increase to $17.27 per hour. The County’s website with more information and updated workplace posters is available here.

4. February 14, 2024 deadline for employers to give notice regarding noncompetition agreements.

Two new companion laws drastically expanded California’ ban on noncompetition agreements in most employment contracts. These new laws bar employers from entering into or attempting to enforce noncompete agreements and require employers to give written notice to current and former employees revoking any existing noncomplete agreements.  SB 699 expands the prohibition on noncompete agreements in employment contracts to contracts signed out-of-state, voiding noncompliant provisions regardless of where or when the contracts were signed. 

In addition, SB 1076 requires employers to provide individualized written notice to all current employees and all former employees (employed after January 2022) stating that any existing noncompetition clause in an employment agreement or noncompete agreement with the employer is void. Employers who have utilized a noncompetition clause have until February 14, 2024 to provide this required notice to employees. 

5. Agricultural employers will be provided updated Notice to Employee by March 1, 2024.

Labor Code § 2810.5 requires employers to provide a Notice to Employees to all new hires that includes specific information.  Effective January 1, 2024, AB 636 requires employers to include “the existence of a federal or state emergency or disaster declaration applicable to the county or counties where the employee is to be employed, and that was issued within 30 days before the employee’s first day of employment, that may affect their health and safety during their employment.”  The Labor Commissioner published an updated Notice to Employee that incorporated this and the State’s increased paid sick leave requirements in the notice available here.

Starting on March 15, 2024, employers with employees admitted pursuant to the federal H-2A agricultural visa, employers must include specific information in the 2810.5 notice about their rights as agricultural workers.  The Labor Commissioner is required to publish the updated sample notice by March 1, 2024. 

The start of 2024 is the perfect time for companies to conduct a California employment law audit to ensure policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five topics to review in conducting an audit and a few suggested questions for each topic (feel free to reach out to us as well for a self-audit, we conduct periodic audits for our clients as a preventative measure):

1. Hiring Practices

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided with a writing setting out their accrued paid sick leave each pay period? Has the amount of accrued paid sick leave reported to employees been updated to comply with California’s increased requirements in 2024?
  • Are employees properly classified as exempt or nonexempt?
  • Are any workers classified as independent contractors, and if so, could they be considered employees under AB 5?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained how to recognize off-the-clock work and what disciplinary actions to take if finding employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law? Employers should note that meal breaks cannot be rounded pursuant to Donohue v. AMN Services, and whether California employers may use time rounding at all is currently being reviewed by the California Supreme Court. Employers are cautioned about using time rounding given these cases.
  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub? Does the company have a clear definition of what is considered a missed break and document why the employee missed the break?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
    • Are employees provided attestations to document the reason if the employee missed, took a short, or a late meal break? (See Donohue v. AMN Services)
  • If employer provides vacation, is the policy properly documented, tracked, and is unused vacation paid out with the employee’s final paycheck?
  • Are all deductions from the employee’s paycheck legally permitted?
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment, mileage for work, and for expenses incurred for working from home (such as internet, cell phones, etc.)?

 4. End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Are final paychecks provided to employees within the required deadlines?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted? (Use caution, very few deductions are permitted under California law.)

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 5 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with California law.)
  • Are there steps in place to provide nonsupervisory employees with 1-hour sexual harassment prevention training and once every 2 years thereafter? (Required for employers with 5 or more employees.)
  • Are supervisors and managers discussing the company’s open-door policy to employees at routine meetings with employees? Is this being documented?

As recently covered on this blog, the surge in Private Attorneys General Act (PAGA) lawsuits and the amounts of damages sought in these cases in California has become a significant cause for concern among the business community. PAGA, initially designed to empower employees to file lawsuits for labor code violations on behalf of themselves and other workers, has seen a dramatic increase in its application. This uptick has not only heightened the legal and financial pressures on companies across various industries but also raised questions about the broader implications for the state’s business environment. The California Supreme Court decided a key issue in Estrada v. Royalty Carpet Mills, Inc., regarding whether a trial court has discretion to limit PAGA cases that are unmanageable.  Here are five key issues California employers need understand about the Estrada decision:

1. Background of PAGA

PAGA became law in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and on behalf of the State of California for Labor Code violations.  PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees.  The statute was intended “to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.” Iskanian v. CLS Transportation Los Angeles, LLC (2014).   The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.” PAGA is “simply a procedural statute allowing an aggrieved employee to recover civil penalties … that otherwise would be sought by state labor law enforcement agencies.” Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009).  As the California Supreme Court explained in Estrada v. Royalty Carpet Mills, a PAGA plaintiff “represents a single principal, the [Labor and Workforce Development Agency] LWDA, that has a multitude of claims.”  Therefore, nonparty employees and the California government are bound by PAGA judgments, nonparty employees are not bound as to “remedies other than civil penalties.”

Civil penalties recovered under PAGA are split: 75% of the penalties go to the state, and 25% go to the aggrieved employees.

2. Supreme Court issue being reviewed in Estrada v. Royalty Carpet Mills, Inc.

The issue in Estrada was: Do trial courts have inherent authority to ensure that claims under the Private Attorneys General Act (Lab. Code, § 2698 et seq.) will be manageable at trial, and to strike or narrow such claims if they cannot be managed?

The California Supreme Court’s answer: No.  The California Supreme Court explained, “striking a PAGA claim on manageability grounds alone, as the trial court did in this case, is inconsistent with a plaintiff’s statutory right to bring such a [PAGA] claim and is beyond a trial court’s inherent authority.”  This decision resolved a split in authority between two cases: Wesson v. Staples of the Offices Superstore, LLC and Estrada v. Royalty Carpet Mills, Inc.

3. Distinction between class actions and PAGA suits.

The California Supreme Court explained in Estrada that a PAGA suit, while it is brought on behalf of all aggrieved employees, is procedurally different than a class action.  A class-action plaintiff can “raise a multitude of claims because he or she represents a multitude of absent individuals; a PAGA plaintiff, by contrast, represents a single principal, the [Labor and Workforce Development Agency] LWDA, that has a multitude of claims.”  Therefore, the due process rights of third parties are “not paramount.” 

Moreover, under federal law and California law, “manageability” is a factor used to determine whether a class action can be certified.  For example, the California Supreme Court in Duran v. U.S. Bank National Assn. (2014), held: “In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.  ‘[W]hether in a given case affirmative defenses should lead a court to approve or reject certification will hinge on the manageability of any individual issues.’ In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting.”  However, the California Legislature did not write any type of manageability requirement into the “detailed statutory requirements for maintaining a PAGA claim.” 

4. Even though trial courts lack power to dismiss PAGA claims because of manageability, they have other tools to manage PAGA cases. 

The Court in Estrada explained that even though trial courts do not have the inherent authority to strike PAGA claims on manageability grounds alone, there are tools trial courts have to manage PAGA cases, such as:

  1. Discretion in setting what penalties, if any, to award to plaintiff;
  2. May limit witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties;
  3. May limit the scope of the PAGA claim; and
  4. May issue substantive rulings, including but not limited to, demurrers, motion for summary judgment or judgment notwithstanding the verdict in cases in which a plaintiff is unable to meet their burden of proof or pleads the claim in an overbroad or unspecific manner.

5. 2024 Ballot Initiative to reform PAGA

On another front, PAGA faces a battle for survival directly from the voters of California. The California Fair Pay and Employer Accountability Act aims to replace PAGA. This initiative has garnered enough signatures to secure a spot on the November 2024 ballot. If approved, it would allow employees to receive 100% of the penalties collected, a significant increase from the current 25% allocation. Additionally, it proposes to prohibit the awarding of attorneys’ fees in such cases and to double the penalties for employers who knowingly violate the law. More details about the initiative are available on the Californians for Fair Pay and Accountability website.

Under existing law, the California Health and Safety Code requires all food handlers to obtain a food handler card that meets certain training and testing requirements.  Effective January 1, 2024, SB 476 requires employers pay for the costs associated with the training and testing, in addition to paying the employee for the time associated with the training and testing.  Here are five key issues California employers must understand about the existing obligations as well as the new requirements under SB 476 for food handlers for 2024 and onward:

1. Employers must pay for the costs and wages for time to obtain a food handler card.

SB 476 requires that as of January 1, 2024, employers must pay for the costs of the food handler card course, as well as pay the employee for the time spent in in the training and time required to take the examination.  The employee must also be relieved of all other work during the time of the training and examination. 

2. Employers cannot condition employment upon having a food handlers card.

In addition, under SB 476, employers may not condition employment for an applicant or an employee on having an existing food handler card.  This requirement left a few open questions for employers, such as: Can employers give preference to employees who already have a card when hiring?  What if an employee has taken the food handler test multiple times but cannot achieve a passing score, can the employer decide not to continue employment with this employee?  Hopefully there will be some clarity provided on these issues by the Legislature. 

Employers are urged to update hiring materials, job ads, and train managers who are in charge of hiring employees to ensure compliance with this requirement that employment cannot be conditioned upon already possessing a food handler card. 

3. Food handler card timing requirements. 

SB 476 does not change the general timing requirement of when a food handler must obtain the card and the time period for which it is valid for.  As a reminder, food handler is required to obtain a food handler card within 30 days after the date of hire, and must maintain the food handler card throughout their employment.  Generally, food handler cards are valid for three years from date of issuance, and carry over to the employee’s new employer if they change employment during this time period. 

4. Food handler testing requirements.

SB 476 does not change the requirements for the training and examination required to obtain a food handler card.  As a reminder, the test must cover specific information set forth in Section 113947.2, and be designed to be completed within approximately two and a half hours.  The examination must consist of at least 40 questions, and in order to pass, the food handler must earn at least a 70% on the examination. 

The training may be offered through an in-person class and examination, or throught a computer or internet based course.  If offered in a computer or internet based course, there needs to be sufficient security to prevent fraud, but this does not require a proctor to be present during a computer or internet based course. 

The requirement to obtain a food handler’s card does not apply to a food handler who is employed by any of the following:

(1) Certified farmer’s markets.

(2) Commissaries.

(3) Grocery stores, except for separately owned food facilities to which this section otherwise applies that are located in the grocery store.

(4) Licensed health care facilities.

(5) Mobile support units.

(6) Public and private school cafeterias.

(7) Restricted food service facilities.

(8) Retail stores in which a majority of sales are from a pharmacy, as defined in Section 4037 of the Business and Professions Code, and venues with snack bar service in which the majority of sales are from admission tickets, but excluding any area in which restaurant-style sit-down service is provided.

(9) A food facility that provides in-house food safety training to all employees involved in the preparation, storage, or service of food if certain conditions are met.

(10) A food facility that is subject to a collective bargaining agreement with its food handlers.

(11) Any city, county, city and county, state, or regional facility used for the confinement of adults or minors, including, but not limited to, a county jail, juvenile hall, camp, ranch, or residential facility.

(12) An elderly nutrition program, administered by the California Department of Aging, pursuant to the Older Americans Act of 1965.

5. Employer’s documentation obligations.

The new law does not change the documentation the employers must maintain about the food handler cards for their employees.  As a reminder, the regulations require each food facility that employs a food handler to maintain records documenting that each food handler employed possesses a valid food handler card, and shall provide those records to the local enforcement officer upon request.

As we embark on the year 2024, California’s employment law landscape is poised to continue to present an unfriendly environment for employers. This article proffers some predictions for California employment law in 2024, examining potential legislation and emerging legal trends. Here are a few likely scenarios the Golden State might have in store for employers in the upcoming year.

1. Continued increase in PAGA litigation.

I’m not going out on a limb in predicting that PAGA litigation over meal and rest breaks will continue to rise in 2024.  However, I will predict that PAGA claims will start expanding more into other wage and hour allegations, including for claims of expense reimbursement and claims for paid sick leave under California’s Healthy Workplaces, Healthy Families Act of 2014 – especially with the increase of paid sick leave under the Act in 2024.  In March 2023, a California court of appeals held that plaintiffs could bring PAGA claims for alleged violations of California’s paid sick leave requirements in the Healthy Workplaces, Healthy Families Act of 2014.  In Wood v. Kaiser Foundation Hospitals, the court held, “Given the perceived necessity for mandating minimum paid sick leave, coupled with its documented understanding that traditional government institutions would be unable to adequately assure compliance, it seems inconceivable that the Legislature intended to prohibit PAGA actions to enforce the Act.”  As employers continue to place defenses against the traditional meal and rest break claims, it is likely that plaintiffs will be turning to other provisions in the Labor Code, such as the Healthy Workplaces, Healthy Families Act, for alternative PAGA claims. 

2. Industry focused regulations will become more prevalent.

On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed the FAST Act and implemented new regulations of the fast-food industry in California and will be raising the minimum wage for the fast-food industry to $20 per hour on April 1, 2024.  AB 1228 applies to national fast food chains, which are defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. Just as AB 1228 targets the fast-food industry, I predict that California will continue to see legislation that targets specific industries: because the law does not apply to every employer across the state, the opposition to such legislation is much less.  And, of course, once the law is passed and has gained traction in one industry, it is easier for the legislature to expand the law to other industries. 

3. Local jurisdictions will continue their employment regulations, including increased paid sick leave and minimum wages.

As has been occurring over the last few years, local cities and counties will continue to pass employment laws or increase their local requirements for minimum wage and paid sick leave.  As the UC Berkeley Labor Center reports, before 2012 only five local jurisdictions had minimum wage laws, but now there are 59 cities and counties that do.  I predict that local jurisdictions will start expanding their employment regulations and not only regulate minimum wage and paid sick leave, but many other aspects of the employment relationship. 

4. Increase in criminal actions brought in connection with Labor Code violations.

On September 6, 2023, District Attorney Gascon announced the creation of a new “Labor Justice Unit” (LJU) that will focus on pursuing criminal charges for employment violations.  Gascon said in the press release that the LJU “will bolster our existing fight to end wage theft and labor exploitation by providing a dedicated team of seasoned prosecutors and investigators whose focus will be the enforcement of these laws.”  The State Labor Commissioner, Lilia Garcia-Brower, joined Gascon in the announcement, and stated, “California needs more criminal prosecutions of wage theft to protect workers and honest employers from unfair competition. My office will continue to work closely with the LADA office to hold perpetrators accountable.”

5. Time rounding polices will likely be not permissible.

The California Supreme Court is currently reviewing the issue of whether California employers are permitted to use neutral time-rounding practices to calculate employees’ work time for payroll purposes.  The case is Camp v. Home Depot, and we expect a decision within the next 30 to 60 days.  I’m predicting that the Supreme Court will rule that employers cannot use time rounding any longer in California.  In 2021, the California Supreme Court held in Donohue v. AMN Services LLC, that employers may not use time rounding policies in context of meal periods.  I expect this line of reasoning will be broadened to apply for all timekeeping purposes. 

Happy New Year!  2023 has been another challenging year for California employers.  Some of the critical issues for employers included returning employees to the office after COVID-19, the California Supreme Court’s ruling that employers could not enforce PAGA waivers in arbitration agreements, the continuing onslaught of PAGA litigation, and the new employment laws passed for 2024.

This Friday’s Five focuses on the enormous amount of work put forth by our team at Zaller Law Group (ZLG) during 2023 in helping California employers deal with and stay informed with California legal developments:

1. 54 Blog Posts

The California Employment Law Report was a primary resource ZLG uses to provide updates about California employment law during the year.  Our blog will continue to be one of the first places new legal issues that employers need to know about are posted.  If you are not already a subscriber, you can subscribe to the blog here:  https://www.californiaemploymentlawreport.com/subscribe/

2. Over 20 webinars conducted

We hosted a number of webinars through our Firm, as well as in partnership with various organizations.  These webinars were a great source of information for California employers to stay informed about California’s quickly developing issues.

3. 71 YouTube Videos

There were over 68,000 views of the Firm’s video content on our YouTube channel.  Our number of subscribers to the channel continues to rise each year.  Currently there are over 2,300 subscribers. Feel free to check out our channel here: Employment Law Report – YouTube.

4. Most viewed LinkedIn Post: Discussion of Los Angeles Times article I was quoted in regarding litigation facing restaurants over service charges and tips.

The Los Angeles Times article discussed the ins and outs of tips and service fees under California law. If you’ve ever been puzzled by these rules as a consumer or a business, the article is a great read.  My LinkedIn post discussing the article was the most viewed post during 2023 – understandably as it is a critical issue facing California’s hospitality industry. 

5. 10 employees of Zaller Law Group.

The work described above is a testament to the dedication of the attorneys and staff at Zaller Law Group on how hard the team works to reach these accomplishments in 2023 – especially considering that this work is in addition to the normal litigation obligations the team provides in defending employers in court.

Wishing everyone the best for 2024, and we look forward to assisting California employers in successfully navigating California employment laws in the New Year!

This Friday’s Five is a break from the normal legal update – I’m asking you a few questions.  I started this post last year, and wanted to continue with the questions. Hopefully the questions will help you reflect on 2023, what you are most grateful for, and what you are looking forward to in 2024.  I cannot claim credit for many of these questions, as many of them have been asked during various meetings I attended leading up to the holidays.

What is the thing you are most grateful for in 2023?

I’m grateful to work with clients who inspire me with the products and services they sell. I am amazed with the variety of products my clients invent, and how innovative these businesses are.

What is your favorite thing to do over the holidays? 

I enjoy going somewhere with snow with my family.  We spend some time skiing and have a lot of down time to hang out.  Usually we get snowed in, and it is nice to spend the time with family with no outside obligations.  However, this year there is not much snow, but it is nice being in an area without distractions so that I can spend time with my family without having everyone preoccupied with gifts and other obligations.

If you were to have a famous singer visit your house for a concert during the holidays, who would you like? 

This was a question asked during a board meeting – the responses were awesome.  For me, my favorite singer is still Walker Hayes.  I really enjoyed seeing him in concert, and think Walker would be a great musician to have over for a holiday party.  My favorite song of his?  Probably “Country Stuff.”

What is your favorite food during the holidays?

I’ve had some great tamales given to me from a restaurant client, and I look forward to them every year.  However, my best friend/roommate from college and his mom make a cookie plate with a variety of cookies, and these are by far my favorite (if I can fend off my family members from eating them before I can have a couple).

What is the coldest place you’ve ever traveled to during the holidays?

Last year while I was in Montana for the holidays, it reached -22 degrees Fahrenheit. This was the coldest weather I’ve ever been in.

I hope these questions help you review what is important to you and reflect, even if it is only for a minute.  I hope you are staying warm and wishing you the best over the holidays and have a Merry Christmas.

Labor Commissioner hearings can be a stressful ordeal. However, with some planning and understanding about the process, employers can set themselves up for the best possible outcome. Here are a few pointers about the strategy during Labor Commissioner hearings, and items to remember while completing the process.

1. Be courteous to everyone during the process.
Be nice to the clerk checking people in at the Labor Commissioner’s office. Be nice to the Deputy Labor Commissioner hearing the claim. And yes, be nice to the claimant. You can be nice while still aggressively defending your position, just don’t be an a$$ about it. I can hear other lawyers criticizing this advice already with the idea that you do not want to make the process pleasant for the other side in order to deter this type of behavior. I disagree with this approach. First, once the claim is resolved, it is generally binding on the parties, so by making the process unpleasant on the claimant, it will not be deterring any other actions. Second, the hearing officers are human beings, if they get the sense that you (or your opponent) are the unreasonable party creating the conflict, they are probably going to find against you.

2. Do not take it personally.
Because Labor Commissioner claims can be relatively small, and parties do not need to be represented by a lawyer, many parties represent themselves during the process. However, just like negotiating someone’s salary, employers need to view the process as a business transaction, not a personal attack. If it is too hard to separate the personal issues from the process, it is best to hire a lawyer to help make the arguments for the company and to help take the personal aspect of the process out of the equation.

3. Read the DLSE’s website for the Labor Commissioner’s view of the law.
The DLSE has a great website explaining its position on some aspects of California labor law. While the DLSE’s view expressed on its website is not necessarily binding on the parties, it is a good starting point regarding what issues the company will likely be challenged on during the proceeding.

4. Make the record.
The actual Labor Commissioner hearing is tape recorded, and the parties and any potential witnesses give testimony under oath during the proceeding. Therefore, because there is a record of testimony provided under oath, if the case is appealed to superior court by either party after the hearing, this testimony will be very important in subsequent proceedings.

5. Don’t make the wrong record.
This goes back to being prepared. All parties have to be truthful as they are sworn in, but be careful in your testimony. Think through all of the facts before the hearing. If you wrongly recall facts or begin to guess at answers during the Labor Commissioner hearing, and then try to correct those facts at a subsequent proceeding, it will adversely affect your credibility. Think through your testimony before the hearing in order to be as accurate as possible.

The recent surge in Private Attorneys General Act (PAGA) lawsuits and the amounts of damages sought in these cases in California has become a significant cause for concern among the business community. This legislation, initially designed to empower employees to file lawsuits for labor code violations on behalf of themselves and other workers, has seen a dramatic increase in its application. This uptick has not only heightened the legal and financial pressures on companies across various industries but also raised questions about the broader implications for the state’s business environment. The California Supreme Court recently heard oral arguments in Estrada v. Royalty Carpet Mills, Inc., regarding whether a trial court has discretion to limit PAGA cases that are unmanageable.  This article reviews the split in California Appellate courts on this issue, and how the case could impact the potential future of PAGA litigation in California.

1. Background of PAGA

PAGA was enacted in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and on behalf of the State of California for Labor Code violations.  PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees.  The statute was intended “to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.” Iskanian v. CLS Transportation Los Angeles, LLC (2014).   The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.” PAGA is “simply a procedural statute allowing an aggrieved employee to recover civil penalties … that otherwise would be sought by state labor law enforcement agencies.” Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009).

2. Supreme Court issue being reviewed in Estrada v. Royalty Carpet Mills, Inc.

Do trial courts have inherent authority to ensure that claims under the Private Attorneys General Act (Lab. Code, § 2698 et seq.) will be manageable at trial, and to strike or narrow such claims if they cannot be managed?

The parties had oral argument before the California Supreme Court on November 8, 2023.  Therefore, a decision should be expected at any time.  This decision will resolve a split in authority between two cases: Wesson v. Staples of the Offices Superstore, LLC and Estrada v. Royalty Carpet Mills, Inc.

3. Wesson v. Staples of the Offices Superstore, LLC – Holding that trial courts have authority to deem PAGA cases are unmanageable.

In Wesson v. Staples of the Offices Superstore, LLC (September 2021) the Second Appellate District, Division Four, of the Court of Appeal of California held, “We conclude that courts have inherent authority to ensure that a PAGA claim will be manageable at trial—including the power to strike the claim, if necessary—and that this authority is not inconsistent with PAGA’s procedures and objectives, or with applicable precedent.”  In so holding, the Wesson court found  that the trial court did not abuse its discretion in striking Wesson’s PAGA claim as unmanageable.

The Wesson court explained that, “California courts have exercised their inherent powers to preclude representative claims where a trial of those claims would be unmanageable. In the class action context, the courts have required class action proponents to demonstrate that ‘litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.’”

In Wesson, the plaintiff brought a PAGA claim for over 346 Staples General Managers for over $36 million in civil penalties.  Wesson’s claims were based on the theory that the GMs were misclassified as exempt employees, and should have been paid overtime, and provided meal and rest breaks.  The Appellate court noted that the record “raised significant manageability concerns.”  Staples presented evidence that the GM position was not standardized, and there were critical variations on how GMs performed their jobs and the extent to which they performed nonexempt tasks.  Staples produced evidence that showed the duties for each of the GMs varied based on each store’s “size, sales volume, staffing levels, labor budgets, and other variables.” Staples also presented evidence that showed GMs’ management duties varied based on each of their “experience, aptitude, and managerial approaches, among other factors.”  Based on this, Staples argued that Wesson’s PAGA allegations “would require individualized assessments of each GM’s classification and would lead to ‘an unmanageable mess’ that ‘would waste the time and resources of the Court and the parties … .’”

Therefore, the Wesson court held, “We do not believe a court is powerless to address the challenges presented by large and complex PAGA actions and is bound to hold dozens, hundreds, or thousands of minitrials involving diverse questions, depending on the breadth of the plaintiff’s claims.” 

4. Estrada v. Royalty Carpet Mills, Inc. – Holding that trial courts do not have authority to deem PAGA cases unmanageable. 

In March 2022, the Fourth Appellate District, Division Three of the California Court of Appeal issued a decision in Estrada v. Royalty Capet Mills, Inc. disagreeing with the holding in Wesson.  The court in Estrada stated, “After reviewing both perspectives, we respectfully disagree with Wesson and agree with the reasoning of the district courts that have refused to dismiss PAGA claims based on manageability.” The court in Estrada held that manageability is a requirement that plaintiffs must prove in a class action, but that “‘a representative action under PAGA is not a class action.’” The court explained that a class action is “a procedural device for aggregating claims ‘when the parties are numerous, and it is impracticable to bring them all before the court.’” However, PAGA claims “are administrative law enforcement actions that ‘are different from conventional civil suits. The Legislature’s sole purpose in enacting PAGA was ‘to augment the limited enforcement capability of the [Labor Workforce Development Agency (LWDA)] by empowering employees to enforce the Labor Code as representatives of the Agency.’” 

Due to the differences between class actions and PAGA representative actions, the California Supreme Court has held that PAGA plaintiffs need not meet class action certification requirements when pursuing PAGA penalties in Arias v. Superior Court, and Kim v. Reins International California, Inc. 

The court in Estrada held, “Accordingly, requiring that PAGA claims be manageable would graft a crucial element of class certification onto PAGA claims, undercutting our Supreme Court’s prior holdings.”

However, the Estrada court conceded that there are issues that trial courts must manage in PAGA cases, as “[s]ome PAGA claims involve hundreds or thousands of alleged aggrieved employees, each with unique factual circumstances. We do not intend our ruling to mean that in such scenarios, a court must allow for each of these alleged aggrieved employees to be examined at trial. Such a scenario would be unduly expensive, impractical, and place far too great a burden on our already busy trial courts. Rather, courts may, where appropriate and within reason, limit witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties to assess.”  Ultimately the Estrada court did not set forth a standard for trial courts to manage PAGA claims, just that, “[w]e encourage counsel to work with the trial courts during trial planning to define a workable group or groups of aggrieved employees for which violations can more easily be shown….If a plaintiff alleges widespread violations of the Labor Code by an employer in a PAGA action but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.”

5. 2024 Balot Initiative to reform PAGA

Anytime now, the California Supreme Court will issue a decision in the Estrada case, which may empower trial courts to more effectively manage Private Attorneys General Act (PAGA) claims. This could include the authority to restrict the use of this procedural device in cases where it is deemed inappropriate. On another front, PAGA faces a challenge directly from the voters of California. The California Fair Pay and Employer Accountability Act aims to replace PAGA. This initiative has garnered enough signatures to secure a spot on the November 2024 ballot. If approved, it would allow employees to receive 100% of the penalties collected, a significant increase from the current 25% allocation. Additionally, it proposes to prohibit the awarding of attorneys’ fees in such cases and to double the penalties for employers who knowingly violate the law. More details about the initiative are available on the Californians for Fair Pay and Accountability website.

California employers often ask me the question of what steps can they take to stop employment litigation. My response usually begins with a warning that there is nothing an employer can do that will prevent a frivolous lawsuit, but the employer should focus on what they can control.  Employers can only control their actions and decisions, and by thinking about and reviewing a few simple items at least once a quarter, it can greatly reduce a company’s liability. Here are five steps employer can start with (hint – the most important step in my opinion is listed last):

1. Implement accurate and easy to use timekeeping system.

California law requires employers to track start and stop times for hourly, non-exempt employees. The law also requires employer to track the start and stop times for the employee’s thirty minute meal periods. The time system needs to be accurate, and the employer needs to be involved in the installation and setup of the system. Do not simply use the default settings for the hardware and software. Understand what the system is tracking and how it is recording the data. Since the statute of limitations for California wage and hour violations can extent back four years, it is recommended that employers take steps to keep these records at least four years.

2. Have compliant policies and document everything.

I cannot overemphasis the need to document what occurs in the workplace. Most importantly, employers need to document employee performance. It is all too often that a problem employee’s personnel file does not contain any type of documentation about his poor performance. Then, when the employee challenges the employer’s termination decision, it is much harder to prove the business reason behind the decision.

Employers should periodically have their handbooks, operating policies and new hire packets reviewed to ensure they are current. Employers need to remember that a review of policies should extend beyond the handbook, but should also incorporate a review of all other policies, pay practices, and documents that are given to employees when they are hired, during employment, and at termination.

3. Get to know an employment attorney you can run issues by on a day-to-day basis.

You knew this was coming, but regardless of the unashamed self-promotion, employers should have counsel that is well versed in California employment law. California’s employment laws are very nuanced, and an attorney that has experience in this area will save the company not only in legal fees, but also in potential exposure. I have a client that says that when you have a problem with your eyes, you don’t go to you general practitioner. The same applies for advice on California employment issues. It is very unique. In addition, working with an employment lawyer on a routine basis is also a great way to see how he or she works and if the lawyer is compatible with your operations. This is much better to find out early on, instead of discovering that you don’t get along with your counsel in the middle of defending a class action lawsuit.

4. Consider hiring a knowledgeable HR professional.

An experienced HR professional will allow the president or other executives in the company to focus their time and energy in their core roles. In addition, it is helpful from a structural and managerial perspective for the employees in an organization to know exactly who to go to for HR information or complaints. A human resources professional with experience in handling workplace investigations and dealing with employee complaints is very valuable to a company – let’s face it, no matter how well you run your company, there will be complaints. Having a proactive, knowledgeable professional assisting in the process of investigating and resolving the issues is instrumental to a successful company.

5. The owner/CEO needs to be present, involved, and open to hearing out employees’ complaints.

In my opinion, I think the most important step towards reducing employment litigation comes from the top.  And the amount of litigation is inversely proportional to how involved the owner or the CEO of the company is with the employees.  I’ve seen very large employers in California have a very clean litigation record because the owner is in the building every day, knows the employees by name, is available to hear employee complaints and steps in to resolve disputes.  It goes without saying – if the employee has a process within the company to make a complaint, and feels that the company treats the complaints seriously, most issues can be resolved.  Once the employee feels that he or she is not being heard, or treated fairly within the company, they start looking toward litigation to resolve disputes.